This is a rush transcript from "On the Record," May 19, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: President Obama makes another aggressive move, calling for all cars sold in the United States to get an average of 35.5 miles per gallon by 2016. The president met with auto industry executives today, including Jim Lentz, president of Toyota motor sales in the USA. Earlier Jim Lentz went "On the Record."


VAN SUSTEREN: Mr. Lentz, thank you very much for joining us.

JIM LENTZ, PRESIDENT, TOYOTA MOTOR SALES USA: Thank you, Greta, my pleasure.

VAN SUSTEREN: So how was your meeting with the president today?

LENTZ: It was exciting. I mean, this is a truly historic time when the entire industry, from the federal government to state governments to environmental groups to, you know, a dozen or so manufacturers, can all come together and agree on something.

VAN SUSTEREN: Now, it's 35.5 is the fuel efficiency level. How long was the discussion of the bartering coming up to that point?

LENTZ: The discussion has been going on in terms of having harmony for some time.

What's a little bit different about this is this is a new way to calculate CAFE. It's really based on a car attribute by car attribute. So the overall may be 35.5. Depending on what models you sell, your economy requirement may be actually be quite a bit higher than that. And in the case of Toyota we expect that will be the case.

VAN SUSTEREN: In what way? I don't understand.

LENTZ: If you sell a greater percentage of small cars, you are going to have to meet a special small car number. If you sell large cars, you will have to meet a large car number that will be slightly less, full-sized truck a little bit less.

So it will very form manufacturer today to manufacturer based on their sales volumes.

VAN SUSTEREN: Toyota sales the Prius, so you are there. You are at 51 miles per gallon, right?

LENTZ: Yes. We're comfortable where we are in the passenger car side. I think the big challenge for us is going to be in the light truck side. Today, our average truck fleet is about 24 miles per gallon. And we are going to have to move that up to 30, which is a fairly substantial increase.

VAN SUSTEREN: Can you do that by the time posted, or put in this agreement?

LENTZ: I certainly hope we can. But it's going to take a lot of work, especially on the full-sized truck side.

You know, we have new engines coming out. We have new transmissions coming out. But in some cases, it's going to take reengineering of the vehicles to move a lot of weight out of the vehicles.

So it's going to be a challenge for us.

VAN SUSTEREN: Let me talk for a second about the Prius. A new redesign coming out this year, the 2010?

LENTZ: Yes -- actually hitting dealerships in the next week or so.

VAN SUSTEREN: You say by hitting dealerships. I did a little research -- 40,000 advance sales before you even sold the first one is what you expect, and you've got 80,000 people that want this car right away?

LENTZ: In Japan, it's 80,000. It goes on sale in Japan a little bit earlier than the U.S.

It's been a tremendous success in Japan. It will be here as well, but our sold order account is around 20,000, which is beyond what we had expected to be as well.

VAN SUSTEREN: Why is that car doing so well? Because that's the big question as we sort of look at our auto industry in this country, we have to figure out what really works. Why is that such a hot car in terms of sales?

LENTZ: I think it's a hot car for a number of reasons.

First off, this is a third generation. So we have about 700,000 of those that we have already sold. And when you speak to Prius customers, about 90 percent say they will buy another Prius when they come back to market. So we are seeing the early generation people now come back into the market.

We may conquest some sales in the future, but right now, the vast majority of our presold vehicles are all Prius customers.

VAN SUSTEREN: So what's happened, in your opinion, to G.M. and Chrysler?

LENTZ: I think a lot of challenges. They offered consumers what consumers wanted. And when gasoline was cheap, that was large SUVs, full- size cars, and crossovers.

In our case, we never -- even when gas prices were low, we never abandoned the small car segment. We continued to offer a wide variety of product. And I think that's why we have been able to be successful even in this very, very challenging market.

VAN SUSTEREN: Well, if you look at the Prius, I mean 51. I mean that's actually no work for you to meet the new standards that everyone agreed to today. You are 15 miles per gallon over it. So, you know, maybe in a year or two you will be way over that.

What's so special about this hybrid engine that makes this car get so many miles per gallon?

LENTZ: Well, part of it is, again, this is third generation. We have found a way to put a larger gasoline engine in this vehicle, put a larger battery, so that we are actually improving the overall performance in terms of acceleration as well as increase the mileage.

We have spent a lot of time understanding the aerodynamics of the car. So the drag coefficient is much less than prier Prius, just the flow of air around the car. It has a rather unique look to it, even from prior Prius just to manage air flow.

So everything about this car, from electronic steering, electronic water pumps, everything has been done to try to boost mileage just a little tenth at a time.

When we add it all up, it's a vehicle that I think will probably, for most consumers, exceed 50 miles per gallon.

VAN SUSTEREN: All right. Is Toyota, in spite of this car, and I know you have got a lot in your fleet, but despite the success of this car, is Toyota taking a hit like -- I realize not as extreme as Chrysler and G.M., but have you had a hard time?

LENTZ: We have had a hard time. I think everyone in this marketplace has taken a hit.

If you look at the past four recessions, from peak to valley the market moved around 23 percent. If you look at the peak of over 17 million in 2000 to where it will be this year, around 10 million, that's a 41 percent hit. It's difficult for anyone to project that and to work that into their business.

So I think we're going to have to see this market come back. I think this year we'll see a slight increase between now and the end of the year. But I think we'll see a substantial increase next years. And as a result of that, I think there will be a lot of other manufacturers along with Toyota that can move towards profitability.

VAN SUSTEREN: Don't you expect to sort of -- assuming that Chrysler and G.M., that things don't get better and get, actually, bleaker for them, don't you expect also to pick up that market, at least part of that market share that they now have?

LENTZ: Right now we are not seeing that. If we take a look at customers who buy Toyota products or at least shop Toyota and shop other makes, General Motors product and Chrysler product are fairly small percentages. So there is not that much for us to pick up right now.

When General Motors left the van business, we saw a little bit of pickup because we were in the van business. But there is not that much cross shop that takes place.

VAN SUSTEREN: The Lexus hybrid, it costs about $20,000 or $30,000 more than the non-hybrid on the high end. Why does it have to be so much more expensive?

LENTZ: On the hybrid?


LENTZ: The hybrid is a price premium of around 3,000, $3,500. The battery is a big piece of that. The inverter and other technologies -- it's basically having two propulsion systems in one vehicle.

I think over time, from generation one to two to this third one, we have been able to reduce the overall size of the components in the price almost in half from one to two.

Our desire was to do that from two to three as well. But, quite frankly, we have had a difficult time on the battery side meeting that challenge of reducing price in half.

VAN SUSTEREN: I may have grossly overstated that as it relates to the high end Lexus, because I know that the prices -- actually the top of the line price for the new Prius is $28,000, or you can get one for even $22,000. But you are going to have to stand in line. It's a very popular car.

Anyway, thank you, sir, and nice to see you, sir.

LENTZ: Thank you very much. All the best.


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